13 March 1992
Supreme Court


Case number: C.A. No.-000678-000679 / 1977
Diary number: 61569 / 1977








CITATION:  1992 AIR 1139            1992 SCR  (2) 185  1992 SCC  (2) 514        JT 1992 (2)   567  1992 SCALE  (1)651

ACT:      Income-tax,   1961-Sections  271(1)(c),  148,   139(2)- Imposition  of  penalty  of concealment  of  income  in  the return-Whether the law as it stands on the date of filing of the  original return applicable or the law as it  stands  on the date of filing of return in response to notice u/s.  148 applicable.

HEADNOTE:      The  respondent- Hindu Undivided Family  filed  returns for  the  assessment years 1961-62 and 1962-63  showing  the income of Rs. 13,935 and Rs.24,943 respectively.  The Income Tax  Officer determined the income of the respondent of  Rs. 28,513 and Rs. 28,463 respectively for the assessment years.      Subsequently, when the Income Tax Officer came to  know that  the  assessee  respondent had  not  disclosed  certain income  from  the sale of lands in its  returns.  he  issued notice  u/s.  148  of  the  Income-tax  Act,  1961  for  the assessment  years on 9.3.1965.  On 27.2.1969,  the  assessee filed  its  returns  disclosing the same income  as  in  the original returns, viz. Rs. 18,935 and Rs.24,943 respectively for the two assessment years.      The  I.T.O  determined the income  for  the  assessment years  at Rs.52,185 and Rs. 44,017 respectively,  which  was reduced  on  further  appeals  to  Rs.41,923  And  Rs.34,547 respectively for the two assessment years.      The   I.T.O.  after  making  the   re-assessment   also initiated  proceedings  u/s.271(1)(c) of the  Act,  for  the failure  on  the part on the assessee to return  the  income from  sale of lands.  Originally he was of the opinion  that the income from the lands constituted "business income", but later it was held that it was assessable as "Capital Gains".      The  assessee-respondents  filed  appeals  before   the Income-tax Appellate Tribunal, which reduced the penalty  to 20  percent  of the tax payable on the amounts  of  "Capital Gains" included in the assessments and not disclosed in  the returns. It held that since the penalty proceedings related                                                         188 to  the assessment years 1961-62 and 1962-63 the  provisions of the Income-tax Act as they stood respectively on 1.4.1961



and  1.4.1962 would be applicable to determine  the  penalty and  not  the  amended  provisions  which  came  into  force w.e.f.1.4.1968.      When  the  matter was referred to the  High  Court,  it upheld the conclusion of the Tribunal, taking the view  that the  law applicable in regard to the imposition  of  penalty would  be  not the law as on the 1st April of  the  relevant assessment year but the law prevailing on the dates when the original returns were filed.      On the refusal of the High Court to grant a certificate of fitness to appeal to this Court, the Revenue filed  these appeals by special leave.      The   appellant-Revenue  contended  that  the   penalty proceedings  were  initiated in the course  of  reassessment proceedings initiated u/s. 148 of the Act; that the  returns were  filed after 1.4.1968, by the assessee, in response  to notices  u/s. 148 which were to be treated as  the  original returns  of income filed u/s. 139(2); that the assessee  had failed to disclose in these returns the income from the sale of lands, which was taxable under "Capital Gains" head; that the  relevant returns, having been filed  after    1.4.1968, the  provisions of section 27(1)(C) as amended in 1968  were attracted.      The respondent-assessee submitted that in  a case where a return filed u/s. 148 involved an  element of concealment, the  law applicable for imposition of penalty would  be  the law  as in force at the time of the original   return  filed for  the assessment year and not the law as it stood on  the date on which the return in response to the notice u/s.  148 was filed.      Dismissing the appeals of the Revenue, this Court,      HELD  :  1.01.  In a case  multiple  returns,  the  law applicable to the penalty proceedings should be taken to  be the  law  in force on the date of  the original  return,  if any. [194F]      1.02.  In  the course of re-assessment  proceedings,  a penalty  could be imposed with reference to the  concealment in the original assessment proceedings. [195C]      1.03.   Though,  technically  speaking,  the   original assessment  proceedings                                                         189 have  been finalised and reassessment proceedings  initiated to assess escaped income,it is only the determination of the correct  total  income for the assessment year  in  question that  is  being  re-done.  For  this  assessment  year   the assessee  filed a return of income originally and  in  doing so effected a concealment.  Finally he is being  re-assessed for  the same year and it is open to the Income-tax  Officer to  impose a penalty on him for concealment on the basis  of income  originally returned.  If the original  return  could form  the  basis  for determining  the  quantum  of  penalty impossible on the re-assessment, there is no reason why  the original   return  should  also  not  form  the  basis   for determining the date on which the  concealment was  effected by the assessee. [195E-F]      1.04  If the contention of the Revenue is accepted,  an anomalous  result will follow in certain  glaring  cases  of concealment  or where no return is filed in response to  the notice under S.148. [195G, 196B]      1.05  The matter should not be decided on the basis  of the  consideration that the measure of penalty  w.e.f.1.4.68 has  been changed over to the quantum of concealed and  that by, accepting the assessee’s interpretation, the court  will be allowing  an assessee to get away with a smaller  penalty merely  because the original returns had been  filed  before



1.4.68.   While  this may no doubt be the  position  between 1968  and  1975,  the  situation  will  be  different  w.e.f 1.4.1976. With effect from that date, the measure of penalty will  be the one that prevailed prior to 1.4.68  namely,  on the  basis  of the amount of tax sought to  be  evaded.   In other  words, from 1.4.1976, one will find the  revenue  and the  assessee  taking stands exactly contrary  to  the  ones which they are taking at present. [196C-E]      Commissioner  of  Income-tax v. Ram  Achal  Ram  Sewak, [1977]  106  ITR 144(AII);CIT v.  Gopal  Krishan  Singhania, [1973] 89 ITR 27 (AII);CIT v. Krishna Subhkaran, [1977]  108 ITR  271  (AII);CIT  v. Jiwanlal Shah, [1977]  109  ITR  474 (AII);  CIT v. Onkar Saran, [1979] 116 ITR 317 (AII);  Addl. CIT v. Mewalal Sankatha Prasad,[1979] 116 ITR 356 (AII); CIT v.  Rahman,[1979]  119  ITR 475 (Pat);  C.W.T.  v.  Rajamma, [1979]  120  ITR  132 (Mad);Addl. CIT v.  Atma  Singh  Steel Rolling  Mills,  [1979] 120 ITR 59 (AII); CIT v.  Ram  Singh Harmohan  Singh, [1980] 121 ITR 381 (P & H) (F.B.);  CIT  v. Sucha  Singh Anand, [1984]149 ITR 143 (Del); CIT v.  Antony, [1985]  155  ITR 467 (Ker)  (F.B.);Addl.  CIT  v.  Gurbachan Singh, [1985]156 ITR 74 (Del); CIT v. Kanhaiyalal Ghatiwala, [1989] 180 ITR 338 (RAJ);                                                   190 Chowgule  &  Co (Hindi) P. Ltd v. CIT, [1990]  182  ITR  189 (Bom);Addl. CIT v. Balwant Singh Sulakhanmal, [1981] 127 ITR 597  (M.P.); Addl. CIT v. Ratan Chand Sewakram,  [1985]  151 ITR  112 ] (M.P.); Addl. CIT v. Gopaldas  Amarnomal,  [1985] 151 ITR 114 (M.P.);  Addl. CIT v. Brijmohan Jaiswal,  [1983] 139  ITR 568 (M.P.); CIT v. Bihar Cotton Mills Ltd.,  [1988] 170  ITR  290 (pat.); Brijmohan v. CIT, [1979]  120  ITR  1; Malbary  and Bros.,[1964] 51 ITR 295  (S.C.);  Govindarajulu Iyer  v.  CIT, [1948] 16 ITR 391 & Jagan Mohan  Rao’s  Case, [1970] 75 ITR 373 (S.C.), referred  to.      CIT v. S.S.K.G. Arthanariswamy Chettiar, [1982] 136 ITR 145  &  Addl.  CIT v. Joginder Singh,  [1985]  151  ITR  93, approved.

JUDGMENT:      CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 678  & 679 of 1977.      From  the  Judgement and Order dated 21.3.1973  of  the Allahabad  High  Court in Income  Tax Reference No.  492  of 1973.      B.B.  Ahuja,  S.Rajappa,  P.  Parmeswaran  and  Ms.  A. Subhashini for the appellants.      Santhos  Kr.  Aggarwal,  Vinay Vaish,  B.V.  Desai  and Vinita Ghanpade for the Respondents.      The Judgment of the Court was delivered by      RANGANATHAN,  J. Section 271(1)(C) of  the  Income-tax, 1961 provides for the levy of penalty in the case of persons who conceal or furnish inaccurate particulars of the  income chargeable under the Act for any assessment year.  The Act, as it stood on 1.4.1962, provided that the amount of penalty so  imposable was to be measured with reference to  the  tax sought to be evaded by such an act of the assessee,  broadly described  hereinafter  as  ‘concealment’.   The  amount  of penalty could not be less than 20 per cent of more than  150 per  cent  of  the tax which would have been  avoided  as  a result  of the concealment,  The Finance Act,  1968  amended Section  271(1)(c)  w.e.f.1.4.1968.  In  addition  to  other changes  (which  are  not relevant  for  our  purpose).   It changed  the measure of the penalty.  The  penalty  was  now made  dependent upon the amount of income concealed and  not



on the amount of the tax sought to be avoided.  The  minimum penalty  was not to be 100 per cent of the income  concealed and  the maximum penalty could go upto 200 per cent  of  the income concealed.  This                                                         191 amendment has substantially stepped up the amount of penalty that  could  be levied in cases of concealment.  It  is  the applicability  of this amendment which is in issue in  these appeals.      The  respondent,  M/s. Onkar Saran & sons, is  a  Hindu Undivided  family.   For the assessment  years  1961-62  and 1962-63, it filed returns of income showing total incomes of Rs,  18,935 and Rs 24,943 respectively.  The exact dates  of these returns are not available on record.  Assessments were made  on the assessee determining its total income  at  Rs. 28,513  for the assessment year 1961-62 and Rs,  28,463  for the  assessment  year 1962-63.   The assessment  orders  are dated 30.3.1962 and 28.11.1963 respectively.      Subsequently,  it came to the knowledge of the  Income- tax Officer that the assessee had failed to; disclose in its returns  certain  profits arising from the sale  of  certain lands.   He, therefore, issued notices under Section 148  of the  Income-tax  Act,  1961 for both the years  on  the  9th March,  1965.  If  the assessee had been  prompt  in  filing returns in response to these notices,   the problem that  it now faces may not have arisen.  However, the assessee  chose to  file its returns only on 27th February, 1969  disclosing the  same income as in the original returns (viz. Rs. 18,395 and  Rs.  24,943  respectively) and  the reassessments  were completed  on  6th  March,  1969.   The  total  income   now determined  was Rs. 52, 185 for the assessment year  1961-62 and  Rs. 44,017 for the assessment year 1962-63.  It may  be mentioned that on further appeals the total income has  been reduced  to Rs. 41,923 for the assessment year  1961-62  and Rs.  34,547  for  the  assessment  year  1962-63  and  these assessments  have become final.  It will be noted  that  the difference  between  the  income returned  in  the  original returns and income finally assessed was Rs. 22,988/- for the assessment  year  1961-62 and Rs. 9,604 for  the  assessment year 1962-63.      Having  made the above additions in  the  reassessment, the  Income-tax Officer initiated proceedings under  Section 271(1)(C)  for  the failure on the part of the  assessee  to return  the  income  from  the sale of  lands.   It  may  be mentioned here that originally the Income-tax Officer was of the  opinion  that  the income from  the  lands  constituted "business  income" but subsequently, it has been  held  that the above income was chargeable only under the head "Capital Gains".    The  penalty   proceedings  were  continued   (as contemplated  by  the  Act)  by  the  Inspecting   Assistant Commissioner  who,  by his orders  dated  4.3.1971,  imposed penalties of Rs 24,000 And Rs.                                                        192 10,000   respectively  for  the  two  assessment  years   in question.       The  assessee  preferred  appeals  to  the  Income-tax Appellate Tribunal.  The Tribunal agreed with the Inspecting Assistant  Commissioner of Income-Tax that there was a  case for  the  levy of penalty.    It was, however,  of   opinion that since the penalty proceedings related to the assessment years 1961-62 and 1962-63, the provisions of the  Income-tax Act  as  they stood respectively on  1.4.1961  and  1.4.1962 would  be applicable to determine the amount of penalty  and not  the amended provisions which came into force w.e.f  1st April,  1968.  It  therefore, directed that the  amounts  of



penalty should be reduced to 20 per cent of the tax  payable on the amount of "Capital Gains" included in the assessments and  not disclosed in the returns.  This conclusion  of  the Tribunal was upheld by the High Court on a reference but  on a  slightly  different line of reasoning .  The  High  Court took  the  view  that the law applicable in  regard  to  the imposition  of  penalty would be not the law as on  the  1st April  of  the  relevant assessment year  (as  held  by  the Tribunal)  but  the  law prevailing on the  dates  when  the original  returns  were filed.  In this case,  as  mentioned earlier, the returns originally had been filed sometime   in 1962  and  1963.  The High Court, therefore, held  that  the Tribunal’s conclusion to scale down the penalty on the basis of the tax sought to be avoided was correct.  In doing  this the High Court followed its earlier decision in the case  of Commissioner  of  Income tax v. Ram Achal Ram Sewak,  [1977] 106  ITR 144 All. The High Court having refused to  grant  a certificate  of  fitness  to  appeal  to  this  Court,   the commissioner of Income-tax preferred special leave petitions which  were  granted by this Court on the 9th  March,  1977. That is how these appeals come before us.      The  argument  addressed  by  Sri  B.B.Ahuja,   learned counsel  appearing for the Revenue, is very simple and  runs thus  :   The  original  returns  filed  in  this  case  had culminated  in the original assessments and  are  irrelevant for  the present purposes,  The present penalty  proceedings were   initiated  in  course  of  reassessment   proceedings initiated under s.148 of the  Act. The returns filed by  the assessee were in response to notices under section 148  which are to be treated, in all respects, as the original returns of  income filed under section 139(2). Admittedly, in  these returns  filed  after  1.4.68,the  assessee  had  failed  to disclose  the  income  from the sale  of   lands  which  was clearly taxable, if not as income from business,  certainly, as  income by way of capital gains,  It is now settled  that the law                                                         193 applicable regarding penalty for concealment  is the law  in force as on the date of the "offence" i.e. the return.   The relevant  returns  in these cases, having been  filed  after 1.4.68, clearly attract the  provisions of section 271(1)(c) as amended in 1968.      The  question at issue has been raised  before  several High  Courts.  The view that the penalty in such cases  will be  with reference to the original return for the  year  has been  accepted in the following cases: CIT v. Gopal  Krishna Singhania,  [1973]  89  ITR 27(AII); CIT V.  Ram  Achal  Ram Sewak,[1977]  106 ITR 144 (AII); CIT v. Krishna  Subhakaran, [1977] 108 ITR 271 (AII);ADDL. CIT v. Jiwanlal Shah,  [1977] 109  ITR 474 (AII); CIT v. Onkar Saran, [now under appeal  : 1979-116  ITR  317   (AII);ADDI.  CIT  v.  Mewalal  Sankatha Prasad,  1979-116 ITR 356 (AII); CIT v. Rahman,  [1979]  119 ITR  475  (pat);  C.W.T.  v.Rajamma,  [1979]  120  ITR   132 (Mad);Addl.  CIT v. Atma Singh Steel Rolling  Mills,  [1979] 120  ITR 590 (AII); CIT v. Ram Singh Harmohan Singh,  [1980] 121 ITR 381 (P & H)(F.B.) ; CIT v. Arthanaiswami  Chettirar, [1982]  136 ITR 145 (Mad); CIT v. Sucha Singh Anand,  [1984] 149 ITR 143 (Del);Addl.CIT V. Joginder Singh, [1985] 151 ITR 93  (Del);  CIT v. Antony [1985] 155 ITR 467  (Ker)  (F.B.); Addl.  CIT v. Gurbachan Singh, [1985] 156 ITR 74 (Del);  CIT v. Kanhaiyalal Ghatiwala, [1989] 180 ITR 338 (Raj_; Chowgule &  Co.(Hind) P. Ltd. v. CIT, [1990] 182 ITR 189 (Bom.)   The contrary  view  has, however, been taken  in  the  following cases :Addl. CIT v. Balwant Singh Sulakhanmal [1981] 127 ITR 597  (M.P.); Addl. CIT v. Ratan Chand Sewakhram, [1985]  151



ITR 112  (M.P.); Addl. CIT v. Gopaldas Amamomal, [1985]  151 ITR 114 (M.P.); Addl. CIT v.  Brijmohan  Jaiswal, [1983] 139 ITR  568 (M.P.); CIT v. Bihar Cotton Mills Ltd., [1988]  170 ITR 290 (Pat.) it would, therefore, appear that the decision of  a   majority of the High Court  support  the  contention raised on behalf of the assessee that, even in a case  where a  return  filed under section 148 involves  an  element  of concealment,  the law applicable for imposition  of  penalty will   be  the law as in force at the time of  the  original return filed for the assessment year in question and not the law  as it stands on the dates on which returns in  response to the notice under section 148 are filed.      We have heard both counsel and also been taken  through the  various  decisions  cited before us.   We  are  of  the opinion  that the view taken by the majority of High  Courts is  the more acceptable and more practical view.  We do  not wish  to reiterate the reasoning given in  these  decisions. Suffice                                                       194 it  to say that, among other decisions, the issue  has  been discussed at length in the decision of the Madras High Court in CIT v. S.S.K.G. Arthanariswamy  Chettiar, [1982] 136  ITR 145  (to which one of us - Ramaswamy, J.- was a  party)  and the decision of the Delhi High Court in Addl CIT v. Joginder Singh,   [1985]  151  ITR  93  (TO  Which  another  of   us- Ranganathan, J.-was a party).  For the reasons explained  in these  decisions and briefly summarised below, we  think  we should  uphold  the  view taken by the High   Court  in  the present case.      We may start with the position that, after the decision of  this  Court in Brij Mohan v. CIT, [1979]  120  I.T.R.  1 there  can  be no doubt that the law applicable  to  penalty proceedings  under  s.  271(1)(a) or (c) is the  law  as  in force on the date on which the "offending" return has been filed.   The  question is, which is the  "offending"  return relevant for the purpose of  question ?  It is true, as  Sri Ahuja  says, that in this case, the assessee has  filed  two returns  in both of which he concealed the income  from  the lands.   It  no doubt appears plausible to  argue  that  the present penalty proceedings have been initiated only because of the under statement or concealment in the return filed in 1969  and that, in doing so. the fact that the assessee  had also filed earlier a return of income in respect of which he was guilty of the same cencealment, is totally irrelevant      But,  attractive as this argument sounds, it cannot  be accepted.  The various situations in which multiple  returns are  filed have been analysed in  the two judgments  earlier referred to and detailed reasons have been given to come  to the conclusion that, even in such a case, the law applicable to the penalty proceedings should be taken to be the law  in force  on  the date  of the original return if any.  We  may just  emphasise four considerations which justify the  above conclusions :      (1) In the case of Malbary and Bros., [1964] 51  I.T.R. 295  (S.C.)  the assessee had filed a return originally  and the  assessment proceedings had been completed after  adding the estimated profits  from a Bangkok business which had not been shown in the return.  Penalty proceedings had also been initiated and a penalty had been imposed.  Subsequently, re- assessment proceedings were initiated.  The assessee filed a return  which  showed  a  larger  income  from  the  Bangkok business  than  had  been  estimated  before  and  this  was accepted.    The   Income-tax  Officer   initiated   penalty proceedings again and levied a penalty with reference to the difference between



                                                   195 the  income originally returned and the income  finally  re- assessed.  If the  arguments of Sri Ahuja were correct there could  have  been   no penalty at all imposed  on  such  re- assessment as there was no concealment in the  re-assessment proceedings.  This Court, however, upheld the imposition  of the penalty with reference to the original return but it was observed that, if an earlier penalty had been levied in  the course of the  original assessment proceedings, that penalty order should be re-called and substituted by the new penalty order.     The  decision  of  the  Madras  High   Court   in Govindarajula  Iyer  v. CIT, [1948] 16 ITR  391,  which  was approved  by the Supreme Court in Malbary and  Bros.’s  case also  establishes the proposition that , even in the  course re-assessment  proceedings, a penalty could be imposed  with reference  to  the concealment in  the  original  assessment proceedings.      (2) Recent decisions of this Court in Jagan Mohan Rao’s case  1970-75 ITR 373 S.C. and other cases indicate  a  view that,  once an original assessment is re-opened,  the  whole assessment  proceedings for the year are thrown open for   a fresh  assessment.  For all practical purposes it is  as  if the original assessment order does not exist.  Whether  this principle  can  be taken as applicable for all  purposes  or not,   the  real  position  is  that,  though,   technically speaking,  the  original assessment  proceedings  have  been finalised and re-assessment proceedings initiated to  assess escaped income, it is only the determination of the  correct total  income for the  assessment  year in question that  is being re-done.  For this assessment year the assessee  filed a  return  of income originally and in doing so  effected  a concealment.  Finally he is being re-assessed for  the  year and, as pointed out by Malbary and Bros.’s case, it is  open to  the  Income-tax Officer to impose a penalty on  him  for concealment on the basis of income originally returned.   If the original return could form the basis for determining the quantum of penalty imposable on the re-assessment, there  is no reason why the   original return should also not form the basis for determining the date on which the concealment  was effected by the assessee.      (3)  It will be appreciated that, if the contention  of Sri  Ahuja is accepted, and anomalous result will follow  in certain  glaring  cases  of concealment.  Let  us  take  the following  illustration.  An assessee conceal income in  his original  return.   He gets away with it  and  the  original assessment  is completed without detecting the  concealment. Subsequently  , a notice is given for assessing the  escaped income.  In these proceedings, the assessee                                                   196  files a return of income including the escaped income.   In this situation, the argument of Sri Ahuja, if accepted, will result  in  the  conclusion  that  the  department  will  be helpless  in  imposing  a  penalty in  such  a  case.   That certainly  can  not be the effect of the  legal  provisions. Again,  an assessee would completely escape penalty,  if  he does  not  at all file a return in response  to  the  notice under  section  148.  The argument would be  that,  since  a penalty can be imposed only with regard to the return  filed in  the re-assessment proceedings and since he had filed  no such return he cannot be penalised at all.      (4)  We should also like to utter a note of warning  at this  stage  that the matter should not be  decided  on  the basis  of  the  consideration that the  measure  of  penalty w.e.f.1.4.68 has been changed over to the quantum of  income concealed   and   that   by,   accepting   the    assessee’s



interpretation, we will be allowing an assessee to get  away with  a smaller penalty merely because the original  returns had been filed before 1.4.68. While this may no doubt be the position  between  1968  and 1975,  the  situation  will  be different  w.e.f.1.4.1796.  With effect from that date,  the measure of penalty will be the one that prevailed prior  to 1.4.68 namely, on the basis of the  amount of tax sought  to be  evaded.  In other words, from 1.4.76, one will find  the revenue  and the assessee taking stands exactly contrary  to the ones which they are taking, at present.  The view  which we  are now taking and which appears to favour the  assessee at present, would turn out to their disadvantage and to  the advantage   of  the  department  in  the  context   of   the subsequent amendment with effect from 1.4.76.      For the reasons mentioned above, we are of the  opinion that  the  view  taken by the High  Court  is  correct.  The appeals,  therefore,  fail and are dismissed.  We,  however, make no order regarding costs. V.P.R.                           Appeals dismissed                                                    197